BSP: Peso weakening 'expected' over US Fed rate hikes, global risks

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Metro Manila (CNN Philippines, September 22) — The Bangko Sentral ng Pilipinas (BSP) allayed worries over the peso's freefall against the dollar on Thursday, emphasizing the local currency's depreciation stems from the greenback's strength.

"The current movement of the peso is expected as it largely reflects the strengthening of the dollar given the monetary policy tightening cycle of the US Fed. Now, concerns over the Ukraine-Russia conflict and its protracted impact on global supply chains, global growth uncertainty, and elevated global inflation also continue to drive investors towards the US dollar as a safe haven asset," BSP Deputy Governor Francisco Dakila Jr. said in a virtual briefing.

The local currency set a new all-time low on Thursday, closing at ₱58.49 against the dollar. This breached the previous record close of ₱58 posted just a day ago.

Dakila stressed such foreign exchange pressures aren't unique to the peso, citing the "pronounced weakening" among the region's currencies.

Economists have attributed this to the greenback's strength, amplified by the US Federal Reserve's aggressive actions against inflation. The Fed hiked rates by 75 basis points or three-quarters of a percentage point for the third time early Thursday (Manila time).

"As an inflation-targeting central bank, the BSP will respond to foreign exchange fluctuations to the extent that they pose a risk to the inflation outlook," Dakila said.

The BSP hiked its key interest rate by another 50 basis points or half a percentage point on Thursday to 4.25%, a level last seen in August 2019.

"We believe today's rate hike will help us achieve our price stability objective. This adjustment shall help alleviate some pressures of the peso which could in turn temper inflationary impulses stemming from elevated global commodity prices," the BSP official explained.

Still, he reiterated that the BSP is ready to participate in the foreign exchange market to ensure conditions are orderly and bring down "excessive" volatility in the forex rate.

"The BSP is also prepared to utilize other tools to respond to fluctuations in the exchange rate and to ensure that legitimate demand for foreign currency is satisfied," Dakila further said.

The central bank official likewise assured the public that the economy is "poised to withstand several headwinds" and that dollar reserves remain enough.

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"The currency is supported by structural foreign exchange inflows including from exports, overseas Filipino remittances, business process outsourcing receipts, and tourism," he added.

Dakila refused to comment on how much the peso will further depreciate, saying it is "market-determined."